When construction companies and developers fail to manage post-construction defects properly within the warranty period, it can have significant impacts on insurance premiums for various parties involved.

Every stakeholder is impacted, and that hurts the everyone right up to the property owner or consumer – who quite often ends up literally ‘paying the price’ out of warranty through strata levies, and when the defect has caused further expensive damage. The impact on insurance is felt across the board, and this emerges in the post construction phase especially, during the Defect Liability Period:

Property Owners / Homeowners

Higher Property Insurance Premiums: Homeowners may face increased home insurance premiums if unresolved defects lead to higher risks, such as water damage, structural issues, or electrical hazards. Insurance companies may classify such properties as higher risk, reflecting that in premium hikes.

Special Assessments: If strata-managed buildings need to cover the cost of repairs due to defects not covered under warranties or insurance, this could lead to special assessments for property owners, which are not always covered by insurance policies.

Exclusions on Coverage: Unresolved defects could lead to certain issues being excluded from coverage in the property owner’s insurance policy. For example, if poor management of defects results in mould or structural damage, insurers may refuse to cover these costs in the future, impacting coverage options.

Construction Companies and Developers

Higher Liability Insurance Premiums: Insurance companies may increase liability insurance premiums for developers and construction companies due to a perceived higher risk of claims related to unresolved defects. If claims for construction defects are frequent or large, insurers will consider the company a higher risk, leading to higher premiums.

Claims History Impact: A poor track record of resolving defects can lead to a higher number of claims, affecting the company’s insurance history. This can either result in higher premiums or make it difficult for the company to obtain favourable terms or coverage.

Legal Costs Coverage: Failure to manage defects could lead to lawsuits from property owners or strata bodies. Legal defence costs and potential settlements increase insurance payouts, further affecting premium rates.

Developer Reputational Cost In Future Projects: Developers with a history of unresolved post-construction defects may find it more expensive or difficult to secure insurance for future projects, or face higher scrutiny from lenders and insurers who are wary of underwriting risky developments.

Strata and Building Management

Building Insurance Premium Increases: For residential schemes, where the defects affect shared structures or common areas, building insurance premiums for the entire strata may increase due to the added risk of future claims. This is particularly relevant if defects like water leaks or fire hazards are not addressed properly.

Increased Maintenance Costs: Poor defect management can also lead to more frequent maintenance and repair needs, pushing building management to file more claims, which in turn raises the building’s insurance premiums.

Challenges and Considerations

Poorly managed post-construction defects can trigger a cascade of insurance-related consequences, from increased premiums for all parties involved to potential gaps in coverage. It also negatively impacts the financial and reputational standing of developers and builders, potentially affecting future business opportunities.

With insurance rates increasing rapidly, there is much riding on the post construction warranty phase, where resolving defects properly and within warranty is so critical. And that is not all. Insurance companies are increasingly looking to access broad data sets through technology. and to underwriters to validate operational performance metrics when setting pricing.

According to this recent article from our partners at Procore, one of the many factors insurers look at to assess risk, is technological data. And this is why so many companies are adopting DLP Manager for their post construction defect management platform – as it provides expedient defect resolution, with proof of defect resolution through traceability, as well as critical data about the health and indicative future performance of a building.

See how DLP Manager works to ensure compliance, traceability and early defect resolution in this Frasers Property case study.

Contact the team at DLP Manager below for more information and a discussion about your projects and requirements.